Statewide Property Management Blog

What kind of property is the best for rentals?

2008-06-10T20:38:00.000-07:00

Q: What type of property class do you recommend for a rental?
A: It depends. In the Bay Area, if you want cash flow (at least the positive kind), you need to go with multi-residential. This means several units in one location and if possible, small 1-2 bedroom units. With any rental, you have diminishing returns. What does this mean? Look at the example below:

1 bedroom rent: $1300 800sqft
2 bedroom rent: $1500 1000sqft

The 2 bedroom unit has 25% more square footage but does not have 25% more rent (only 15%). When you buy property, the price of the property is based on the square footage. So the small the unit, the more return you will get on your investment dollar per dollar. You aren't getting a good pay off for the extra space. 1 bedrooms are good for the following reasons: easy to rent & easy to clean/fix. Also, people who live in 1 bedrooms generally won't be asking for anything fancy. As long as it works, that's it. You can make everything standard in a small, lower end unit. If the market goes up, you raise the rent. If it goes down, you lower the rent. Usually, you will always be able to rent it out as long as you set a fair price and keep it in good condition.

Rental Deposits Small Claims Court

2008-06-10T02:39:00.000-07:00

See my comments at the end after you've read this article below
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Action Line: Questions linger for landlord after judge's ruling

Q Last month you replied to a question regarding renters' rights and gave the name of an organization that could be contacted. I seem to have misplaced that number as I am looking for my deposit back on a rental I lived in and am having difficulties.

Second, I also own a house in Santa Cruz and my tenants recently moved out, leaving the very expensive home a mess.

I had to have the carpets cleaned, door handles replaced, paint and general cleaning done, etc.

I refunded 30 percent of the deposit, which represented the deposit minus my expenses and extra days the tenant stayed.

The tenant had been there one year.

We went to small claims court and produced all the receipts and pictures of the premises.

I lost in court and the tenant didn't have to pay any cleaning or painting or extra days.

Aren't there some regulations that require a property to be professionally cleaned (regardless of home cleaning by the tenant) on the tenant's move-out?

And if they move in early aren't they still responsible to pay for those days?

B.C.

A I'll take the second question first, B.C. No, there are no regulations that require a property be professionally cleaned. The law says that the property must be returned to the condition it was in when it was originally rented minus normal wear and tear.

As for the extra days charge, it looks like the judge answered that one for you.

The organization you are looking for is Project Sentinel. It is a non-profit agency providing services to help people resolve housing problems.

According to its Web site, "The agency assists home seekers as well as housing providers through counseling, complaint investigation, mediation, conciliation and education. The services are funded by cities and counties in the greater Bay Area and Central Valley. All services are free and confidential."

You can contact Project Sentinel at (408) 720-9888.

San Jose residents can contact Santa Clara County's dispute resolution program at (408) 792-2314.

For a free copy of the California Department of Consumer Affairs "California Tenants - a guide to residential tenants' and landlords' right and responsibilities," you can call (800) 952-5210.

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This is called bad tenants and liberal judges in our small claims court system. Small claims court is just that, for small items less than $7500. No lawyers allowed. Most of the time, the judge will side with the poor tenant because the rich landlord/owner can afford it. There is almost no "justice" in small claims court. It's about quick resolutions and getting the case out of the system.

This has happened to me before where a tenant lived in a unit for 1 year and used a can of spray paint to do "touch up." Let's just say it looked like a mess, was not in the ORIGINAL condition, and could not be rented without a complete repainting of the unit. I even showed up with PICTURES! My unit looked like it was a freeway sound wall tagged with spray paint. Like the landlord above, I lost the case.

Q: So Bo, what can I do in a case like this? Nothing. Or don't rent out expensive houses to bad tenants. I suspect the landlord didn't find the best tenant or possibly rented out to several individuals vs. one nuclear family. I know beggars can't be choosers but in the end, a bad tenant cost the landlord alot of time, frustration and money.

Out of State Investing

2008-03-04T15:39:00.000-08:00

Q: I'm thinking about buying a townhouse in Florida as a rental? What are your thoughts on that?

A: I'm not an expert on the Florida rental market specific to the city you are looking in. However, why do you want to go there? Real estate is about location, location, location. It's also about supply and demand. In the Bay Area, supply is low and demand is high. It has always been and will contine to be. There are people moving to CA all the time, the weather is great, and there are high paying jobs in tech and biotech. If you live here and you are knowledgeable about the area you live in, buy nearby. I always suggest to put your money where you can see it. Florida is not a place you can see.

Q: But it's cheaper in Florida!
A: Yes but you get what you pay for. You can't get 2 times the rent with a house half the price. You still need to do your homework and do your math. There might be some great neighborhoods there no doubt, but to do the rental, you need to hire a property manager you can trust without you needed to go there more than 2 times a year.

Gardening/Pool Service

2007-12-22T20:49:00.000-08:00

Q: Should I be the one to hire the gardener/pool cleaner? Or can I let the tenants do that?

A: YES YES and YES. The tenant will NEVER do any yard work or maintenance. You can easily hire a weekly gardener for under $100 to come by to cut the grass, spray the weeds, etc. For pools it's about $150 once a week. Unless you want dead overgrown jungle grass and a pool of green algae, always contract out the work. You will be 1) preserving your investment and 2)keeping your tenants and neighbors happy.

The last time I didn't hire the work I had a weed jungle and a pool that became a habitat for stray turtles. Don't be cheap, build it into the rent if you want. But do not neglect maintenance.

Section 8? Your thoughts?

2007-11-11T22:01:00.000-08:00

Q: I've heard a lot about the government Section 8 housing program. Can you tell me a little more about this? Is it worth participating?

A: Section 8 is a government program by the Dept. of Housing and Urban Development (HUD). This program is administered by the Housing Authority of Santa Clara County (for those of us in Santa Clara county obviously). The short explanation is that low/no income persons get subsidized housing vouchers and have to pay very little to no money out of pocket. The size of the grant is determined by income and the # of people on the voucher. The subsidized portion is guaranteed.

Ex. Rent is $1500, gov't subsidizes $1300, and tenant pays $200. So in theory, it shouldn't be too hard for a tenant to come up with $200 a month and the $1300 is guaranteed.

So why is this bad? Without stereotyping, just think about the kind of persons that do not have jobs or very much money, they are good people but not all of them will be very good tenants. I do section 8 all the time and have been doing so for over a decade. My advice to you is that a section 8 tenant probably takes MORE work. The upside is the guaranteed rent or if you really need to find a tenant. There are more rules/regulations but that's a real basic overview. Be happy to provide more information.

What is a necessary repair?

2007-03-19T22:53:00.000-07:00

In a word: everything

Q: When you own the property, who suffers if an item is not repaired? (no matter how small)
A: You (the owner)

Ex. If there is a broken door knob, say the cost is $20, are you going to insist the tenant fix it/pay for it? or are you just going to do the right thing and fix it? The average house in the Bay Area is about $600,000. The average door knob set is about $20.00. You see where I'm going with this. If you don't fix the door knob your tenants are going to kick/slam the door. Then the door will become damaged and you have to replace that for $2-300 dollars (materials + labor).

A house is like a car and it needs constant maintenance. In theory, if everything is used properly it will never break. But do you think your tenants will take the best care of everything? It's human nature to not take care of things that you don't own.

Q: Are you saying I need to pay for everything?
A: No, but what I am saying there are alot of little costs that as the owner, you have to accept. If a tenant breaks a window, you need to fix it right away. You cannot wait for the tenant to give you money and then you go repair it. If you don't fix it, you are allowing a safety hazard to exist and that might be more trouble down the road if the house is burglarized because there was no window. In the case of the window, yes you can bill the tenant and you should. Also, you can collect the repair bill from the security deposit after the tenant moves out if they refuse to pay you at the time of the damage.

The Cheap Landlord

2007-03-09T22:47:00.000-08:00

Some tenants/people live paycheck to paycheck.

A successful landlord and real estate investor cannot live rent check to rent check.

If you cannot afford to have a property vacant for several months, if you don't have reserves for major unexpected repairs, if you can't be bothered on nights/weekends to visit your house, you have no business in being a landlord.

Real estate is about cash flow and investing. An investment generates positive income/cash flow. Real estate is a long term play. You need to invest your time in finding the right property at the right price with the right renter.

Home Owners Associations

2007-02-05T21:08:00.000-08:00

Q: Should I get a place with a homeowner's association?
A: No (if you can avoid it). HOA's are in place to make sure the entire community runs smoothly. They take care of the pool, mow the grass, make sure people aren't abusing the parking lots. The problem is that 1) there end up being a lot of rules that are pretty ...inflexible and 2) the HOA needs to be paid and those fee rise over time. The average cost I have seen in the greater SJ area is $300 a month for your typical HOAs. So if you are collecting $1500 in rent and $300 goes to the HOA. You've just lost 20% of your income. This $300 doesn't go into the house, you aren't paying down your mortgage...you get some maintenance and some insurance and a pool (maybe). Pretty steep for $3600 a year.

If you add fees for a property manager, that original $1500 is down to about $1050. You're almost down 1/3rd from the gross rent on the property. Little things add up in real estate and it's about cash flow. Try to limit those as much as possible.

Mini makeover - most bang for the buck

2006-12-10T21:27:00.000-08:00

Q: I'm on a limited budget, what can I do to make my rental appealing?
A: Typically this is what we do to spend very little and do a quick turn around

1. Cleaning, you can spend some time and do this on your own, soap and sponges and some sweat equity. If your place isn't clean, it won't be appealing.
2. New coat of paint. Roll over some of the dirty spots, usually corners
3. New blinds. These are very inexpensive. Get basic blinds from Home Depot and install them yourself.

Bugs..what do I do?

2006-06-09T19:33:00.000-07:00

Bugs are always a headache. Some tenants don't care. Some tenants are scared of their own shadow.

Ants - use ant spray. Usually tenants leave food out for ants to find. This is especially true during the summer months when it gets hot. I usually show up with a $5 gallon of bug spray I bought at Home Depot. I will spray all the areas with ants and leave the bottle with the tenant. You show hands on work and leave the tenant with the tools to handle the rest.

Mice/Rats - buy traps and poison. No one likes to be near a rat and there are some pretty good humane traps that don't kill them in a gruesome manner. The pellets work well as mice will take those back to their nests and not die inside the unit. Again, tell tenants not to leave any food out. Rats and mice can be carriers of disease. But if there is no food, there will be no rodents. If traps and pellets don't work in about a week, call an exterminator.

Cockroaches - CALL EXTERMINATOR ASAP. If you find a unit is infested with cockroaches, then the unit next door or on top of below is infested as well. If you unit is empty, I suggest using alot of fogger. But call the exterminators right away. This will take a good 1-2 weeks to totally get rid of them. They aren't call cockroaches for nothing.

Bees - if they haven't formed a hive (like under the roof or in the corner of a wall) then you are in luck. There are sprays you can buy to kill off bee hives and nests. I recommend once a week in the spring take a visual survey of your unit. Make sure bees aren't making a nest inside your property walls.

Spiders - depends on how severe. There is no way to prevent every single insect from getting into the house and 1 or 2 spiders isn't an epidemic. Spay them with RAID.

Background Check/Deposit/Reserves

2006-05-11T22:22:00.000-07:00

1. Always do a credit check
- anyone who refuses to pay for a credit check has bad credit
- no credit doesn't mean bad credit, some people pay cash for everything and don't use credit cards. this might even be a good thing if you are running lower end rental units. i have worked with many tenants who have working jobs and pay the rent in cash (usually it's not a good idea to collect large amounts of cash)
- do no accept a "credit report i just ran" if it is more than 2 weeks old.

2. Never let anyone move in ANYTHING before you have the deposit
- i recommend at least 1 month's rent for deposit. you can be flexible depending on the amount of the total rent but NEVER let anyone move in with a couple hundred dollars

3. Besides making sure the potential new tenant has a job, make sure they can show you they have $$$ in the bank. If the rent is $2000/mo, then it's not an unrealistic expectation for any tenant to have at least a few thousand extra dollars in their checking account. Anyone who refuses to show reserves should be avoided. I understand there are privacy issues some tenants might be uncomfortable with, but you already have all their personal information, and they are renting from YOU so unless they have $500,000 cash in their checking, there shouldn't be anything embarrassing about their account balance.

Property Management - Being A Landlord

2006-05-09T21:28:00.000-07:00

INTRO

Welcome to the Statewide PM blog. Here our goal is to share some useful property management tips, some horror stories, and everything in between. Everyone can be a successful landlord and real estate investor by following the tips and tricks we've learned over the years. Feel free to comment and we will be more than happy to share any knowledge we can in helping you become successful in real estate.

-Statewide Property Management Team